WEBVTT - Fed Leaves Rates Unchanged, Dot Plot Signals Hold Until End-2020 0:00:00.440 --> 0:00:02.960 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:03.040 --> 0:00:05.480 Jason Kelly. We're here every day bringing you the latest 0:00:05.519 --> 0:00:09.800 news from the world's of business and finance, plus technology, politics, economics, 0:00:09.840 --> 0:00:13.480 all harnessing the power of Bloomberg Business Week reporters and editors, 0:00:13.480 --> 0:00:16.639 not to mention our hundred journalists and analysts more than 0:00:16.680 --> 0:00:19.280 a hundred and twenty countries. You can download Bloomberg Business 0:00:19.320 --> 0:00:22.200 Week on iTunes, SoundCloud, or Bloomberg dot Com. You can 0:00:22.200 --> 0:00:24.520 also listen to our radio show weekdays at two pm 0:00:24.520 --> 0:00:35.479 Eastern only on Bloomberg Radio. This is the Fed Decides 0:00:35.520 --> 0:00:38.600 on Bloomberg Television and Bloomberg Radio. I'm Scarlet Food. We 0:00:38.640 --> 0:00:41.840 are awaiting the final FED decision of the Central Banks. 0:00:41.960 --> 0:00:44.559 F o MC is expected to keep its interest rate 0:00:44.680 --> 0:00:47.960 unchanged after three street cuts this year. We await the 0:00:47.960 --> 0:00:50.159 announcement at the top of the hour, followed by Fed 0:00:50.240 --> 0:00:53.160 Chief j Pal's news conference in just over thirty minutes. 0:00:53.440 --> 0:00:55.440 Here with me are my co host, Jason Kelly and 0:00:55.680 --> 0:00:57.680 Carol Masser. Do you think we're going to hear in 0:00:57.680 --> 0:01:00.480 a good place again? It feels like it feels like 0:01:00.480 --> 0:01:02.320 we're in a good place. We keep hearing that from 0:01:02.360 --> 0:01:04.640 everyone we talked to, right, Yeah, And I think what's 0:01:04.640 --> 0:01:06.560 really key is what's the bar for the FED to 0:01:06.560 --> 0:01:09.199 actually start thinking about raising rates at this point? Because 0:01:09.200 --> 0:01:11.480 I don't think anybody expects any kind of movement today, 0:01:11.520 --> 0:01:13.479 but I think what happens down the road, and how 0:01:13.520 --> 0:01:15.440 far down the road, that bar is pretty high right now? 0:01:15.480 --> 0:01:18.240 All right? Joining us is Scott Minor, Guggenheim Global CEIO 0:01:18.319 --> 0:01:21.000 and Guggenheim Partner's co founder. His for manager is more 0:01:21.000 --> 0:01:24.080 than two sixty five billion dollars in assets, and Jeff Rosenberg, 0:01:24.160 --> 0:01:28.080 Black Rock Systematic Fix Income Senior portfolio manager. Jeff, what 0:01:28.120 --> 0:01:31.000 will you be listening for? Well, you know, last time 0:01:31.040 --> 0:01:33.360 we were here, I think the big story was this 0:01:33.440 --> 0:01:36.560 notion of asymmetry. And what I mean by asymmetry is 0:01:36.600 --> 0:01:39.039 this is a FED that is very much willing to 0:01:39.080 --> 0:01:42.520 see inflation rise and will be very quick to act 0:01:42.600 --> 0:01:45.759 on any signs of inflation falling. And I think he's 0:01:45.760 --> 0:01:48.760 going to reiterate that message. It's a really important message 0:01:48.800 --> 0:01:52.120 for investors because it really underlies the importance of bonds 0:01:52.120 --> 0:01:54.400 in a portfolio, because we don't need to worry about 0:01:54.400 --> 0:01:57.400 a repeat of two thousand and eighteen, your question a 0:01:57.400 --> 0:01:59.800 second ago. This is going to be a very different FED. 0:02:00.000 --> 0:02:02.080 Will be interesting to see whether they tipped the hat 0:02:02.200 --> 0:02:05.080 at all about the policy review and moving to average 0:02:05.080 --> 0:02:08.520 inflation targeting. That's a new regime, and that's a regime 0:02:08.520 --> 0:02:10.919 where I FED is much more willing to see inflation. Ryan, 0:02:11.000 --> 0:02:12.799 And it's not December of twenty eight we've been talking 0:02:12.840 --> 0:02:16.120 about this. I should say, right where j Pale? You 0:02:16.160 --> 0:02:18.119 know you saw that he said some things that really 0:02:18.160 --> 0:02:20.880 disturbed the market. Scott, Right, Well, I think he's gotten 0:02:20.880 --> 0:02:24.000 a lot better since then, and uh, you know he's 0:02:24.280 --> 0:02:27.359 he's better at communicating. But the thing that I think 0:02:27.440 --> 0:02:29.600 is going to be very interesting is when he makes 0:02:29.800 --> 0:02:33.839 his statement. I think he's going to focus a lot 0:02:33.880 --> 0:02:37.239 on the funding markets and I I think that the 0:02:38.000 --> 0:02:41.560 conversation day is going to be dominated about what's going 0:02:41.560 --> 0:02:45.520 on with REPO? Can the FED really fix this? And 0:02:45.880 --> 0:02:48.320 you know a lot of technical stuff that only people 0:02:48.360 --> 0:02:50.600 like us can really enjoy. Well, did the b I 0:02:50.760 --> 0:02:53.359 S Report change anyone's thinking on what happened and how 0:02:53.360 --> 0:02:56.640 the FED address of issues there? Well, it may have 0:02:56.720 --> 0:02:59.000 changed some people's thinking. A lot of us knew how 0:02:59.080 --> 0:03:02.000 much there was in market in leverage. You know, I'm 0:03:02.040 --> 0:03:05.000 gonna let's make it interesting, Scott, because the meeting itself 0:03:05.040 --> 0:03:07.160 isn't going to be that interesting. I'm going to disagree 0:03:07.160 --> 0:03:11.799 with that. Wait, don't put it down, but I think 0:03:11.880 --> 0:03:13.920 I think Powell doesn't want to make this about the 0:03:13.919 --> 0:03:17.680 repo market. He wants to separate monetary policy from the 0:03:17.720 --> 0:03:20.880 technical aspects of liquidity and the repo markets. And the 0:03:20.919 --> 0:03:24.760 more he addresses the repo markets in a monetary policy 0:03:24.840 --> 0:03:27.280 press conference, the more he conflates the two issues. I 0:03:27.280 --> 0:03:28.720 agree with you. People are gonna want to ask the 0:03:28.720 --> 0:03:30.560 issue because it's an important issue, But I think he's 0:03:30.600 --> 0:03:33.000 gonna want to try to clearly make that separation. Well, 0:03:33.040 --> 0:03:35.160 you may be right. I mean, he may just want 0:03:35.200 --> 0:03:38.480 to avoid it altogether. But you know, history shows us 0:03:38.720 --> 0:03:41.960 that that might not be the best approach. And so 0:03:42.160 --> 0:03:45.720 I'm not sure if the speech writers have maybe prepped 0:03:45.800 --> 0:03:49.240 him with something, because it's gonna come up for sure. 0:03:49.360 --> 0:03:51.480 Either way, he'll probably make the point and stress the 0:03:51.520 --> 0:03:53.520 point that it's not Kuweie. Let's check in. When Mike 0:03:53.600 --> 0:03:57.720 McKee at the Federal Reserve, Mike as boring as forecast 0:03:57.840 --> 0:04:00.880 no change in rates today, and the plot shows the 0:04:00.920 --> 0:04:04.440 consensus is no need for a rate move next year either, 0:04:04.760 --> 0:04:09.280 as they stand hold through the election. Nobody is calling 0:04:09.320 --> 0:04:12.040 for a rate cut next year, and only four of 0:04:12.160 --> 0:04:16.080 seventeen see the need for any rate increase. Nobody dissented 0:04:16.120 --> 0:04:21.480 today either. The first unanimous decision since may notoriously unreliable 0:04:21.480 --> 0:04:25.280 this far out, but the consensus dot suggests one basis 0:04:25.279 --> 0:04:29.719 point move in one at another in twenty two. The 0:04:29.800 --> 0:04:32.480 long run neutral rate, though, remains at two and a 0:04:32.480 --> 0:04:35.719 half percent. As for today's decision to leave rates in 0:04:35.760 --> 0:04:37.480 the range of one and a half to one and 0:04:37.600 --> 0:04:41.359 three quarters percent, The statement says the Committee judges that 0:04:41.400 --> 0:04:45.080 the current stance of monetary policy is appropriate to support 0:04:45.240 --> 0:04:49.880 sustained expansion of economic activity, strong labor market conditions, and 0:04:50.040 --> 0:04:54.200 inflation near the committee's symmetric two percent objective. The statement 0:04:54.320 --> 0:04:59.160 drops the observation that uncertainties about the outlook remain. Instead, 0:04:59.160 --> 0:05:02.480 it says they will quote continue to monitor the implications 0:05:02.520 --> 0:05:07.040 of incoming information for the economic outlook, including global developments 0:05:07.160 --> 0:05:11.040 and muted inflation pressures, as it assesses the appropriate path 0:05:11.080 --> 0:05:14.400 of the target range for the federal funds rate. The 0:05:14.400 --> 0:05:18.599 economic outlook word for word the same as September, except 0:05:18.600 --> 0:05:22.599 that business fixed investment and exports, which had weekend last time, 0:05:22.960 --> 0:05:27.719 remain weak. In this statement. The policymakers economic projections also 0:05:27.800 --> 0:05:31.120 changed very little, except for unemployment. They now see a 0:05:31.160 --> 0:05:33.200 three and a half percent job rust rate by the 0:05:33.320 --> 0:05:35.600 end of next year. That's two tenths lower than they 0:05:35.600 --> 0:05:39.760 saw in September, three point six percent in three point 0:05:39.880 --> 0:05:44.440 seven percent in two, both also down to tenths. The 0:05:44.680 --> 0:05:47.920 long run NEHRU rate now four point one percent, a 0:05:48.040 --> 0:05:51.040 tenth lower than forecast three months ago. The growth and 0:05:51.080 --> 0:05:55.960 inflation forecasts unchanged two percent GDP in slowing to one 0:05:56.000 --> 0:06:00.960 point nine percent in one eight percent in two, while 0:06:01.000 --> 0:06:04.680 PC headline and core inflation one point nine percent next 0:06:04.760 --> 0:06:07.320 year two from then on. And I know you guys 0:06:07.320 --> 0:06:10.960 were talking about this. Finally, no change in balance sheet direction, 0:06:11.240 --> 0:06:14.159 T bill purchases into at least the second quarter of 0:06:14.360 --> 0:06:18.239 next year, and overnight repose and term repos at least 0:06:18.279 --> 0:06:22.320 through January. Alright, Mike McKee at the federal reserve as 0:06:22.320 --> 0:06:25.000 boring as it as was expected, and you're kind of 0:06:25.040 --> 0:06:27.680 seeing that when you look at the market reaction, the 0:06:27.720 --> 0:06:30.279 thirty year yield staying down as you can see they're 0:06:30.680 --> 0:06:32.720 off by four basis points a ten year yield the 0:06:32.760 --> 0:06:35.880 two year yield not really straying that much either. They're 0:06:35.880 --> 0:06:38.880 both lower as well, indicating a rise in prices. US 0:06:38.960 --> 0:06:43.320 equity indexes are mixed. They were beforehand. The sp Marsley, 0:06:43.400 --> 0:06:48.719 the doubt off Marsley, and dollar yen now basically unchanged. Jason, Wow, boring, 0:06:49.080 --> 0:06:51.960 but we're gonna make it exciting. You are listening and 0:06:52.040 --> 0:06:54.719 watching the FED decides here on Blueberg Television and Radio, 0:06:54.760 --> 0:06:58.320 and Jason Kelly, alongside Carol Master and Scarlett Food still 0:06:58.400 --> 0:07:00.960 with us to break it down. Googgenheim's, Scott Minor and 0:07:00.960 --> 0:07:05.480 Black Rocks. Jeff Rosenberg, Jeff, let me start with you. Boring. 0:07:05.600 --> 0:07:09.039 But boring's okay, Well, boring in the sense that it's 0:07:09.240 --> 0:07:12.360 market expectations, right. There's a lot of information in there. 0:07:12.400 --> 0:07:16.440 There's tremendous amounts of information, but it's all pretty much 0:07:16.560 --> 0:07:19.360 as expected. I'll focus on the dot plot because that 0:07:19.400 --> 0:07:22.360 often moves the market. Not going to move the market here, 0:07:22.400 --> 0:07:25.800 pretty much as consensus expected. One hike in twenty one, 0:07:25.840 --> 0:07:30.560 another hike in twenty two, but nothing in and the 0:07:30.680 --> 0:07:34.320 longer run dot no change. There was some possibility there'd 0:07:34.360 --> 0:07:36.440 be a change there that might have moved the back end. 0:07:36.520 --> 0:07:39.720 They didn't do it here. So boring in the sense 0:07:39.800 --> 0:07:42.760 that that's pretty much as expected. But what is it 0:07:43.080 --> 0:07:45.720 telling you. It's telling you this is a FED that 0:07:45.920 --> 0:07:49.120 is on pause for a long time. It's a different 0:07:49.160 --> 0:07:52.240 regime for FED policy making. And even if they do 0:07:52.400 --> 0:07:56.080 start raising rates, they're barely raising rates. This is a 0:07:56.120 --> 0:08:00.880 far cry from normalization from years ago. For those on radio, 0:08:01.200 --> 0:08:03.520 and of course on TV, we're showing dots go on 0:08:03.520 --> 0:08:06.160 the Bloomberg terminals. So taking a look at the dot plot, 0:08:06.320 --> 0:08:09.080 and I should point out that thirteen of seventeen officials 0:08:09.120 --> 0:08:13.200 expect no change in borrowing costs for so it seems 0:08:13.200 --> 0:08:15.880 like all in in terms of what we get. Scott, though, 0:08:15.880 --> 0:08:18.560 I do want to ask, coming off of that, you 0:08:18.640 --> 0:08:21.160 feel like we have enough visibility at this point, especially 0:08:21.240 --> 0:08:23.760 it's an election year and there are still some major 0:08:23.800 --> 0:08:26.000 issues out there now, Carol, I don't think we have 0:08:26.120 --> 0:08:29.160 good visibility at all. And you know, it's it's interesting 0:08:29.280 --> 0:08:31.840 because when you look at what history has sold us 0:08:32.360 --> 0:08:38.000 that about nine months after the last rate cut, the 0:08:38.000 --> 0:08:41.800 FED is back in the mode of raising rates. When 0:08:41.800 --> 0:08:44.280 we're in one of these mid cycles slowdowns. So if 0:08:44.320 --> 0:08:47.760 it truly is a mid cycle slowdown, I mean I 0:08:47.760 --> 0:08:51.079 would anticipate we should probably see an acceleration of growth 0:08:51.160 --> 0:08:53.640 in the second half of next year, and that the 0:08:53.679 --> 0:08:56.559 Fed would try to respond to it. Another thing, though, 0:08:56.600 --> 0:09:01.520 that was really subtle. That was interesting here is they 0:09:01.600 --> 0:09:03.839 left they state the neutral rate is at two and 0:09:03.880 --> 0:09:07.560 a quarter, but they said that the short term rate 0:09:07.600 --> 0:09:13.880 was appropriate, which means in their mind policy must be stimulative. Um, 0:09:14.080 --> 0:09:17.840 it's not neutral. So you know, stimulative policy should spill 0:09:17.880 --> 0:09:20.800 over into the real economy. And uh, you know when 0:09:20.840 --> 0:09:23.080 I when I made these kinds of observations during the 0:09:23.080 --> 0:09:27.080 financial crisis, people never believe that we would get to 0:09:27.120 --> 0:09:30.320 turn around by the third quarter of two thousand nine, 0:09:30.800 --> 0:09:33.439 And so you know, I think by the time we 0:09:33.480 --> 0:09:35.320 get to the third quarter of next year, things could 0:09:35.360 --> 0:09:38.280 look a lot for eleven years in right, Yeah, exactly. Well, 0:09:38.320 --> 0:09:41.120 things have changed a lot, of course INCEO and twelve 0:09:41.160 --> 0:09:44.160 months ago, especially Mike McKee still have the federal reserve there. 0:09:44.360 --> 0:09:47.160 How much did the November jobs report, the blockbuster jobs 0:09:47.160 --> 0:09:50.240 report really help, how in avoiding having to take any 0:09:50.240 --> 0:09:52.280 action to come around and having to tilt wish or 0:09:52.320 --> 0:09:55.400 hawkish in the near term. It'll be an interesting question 0:09:55.440 --> 0:09:58.280 to ask the members of the committee because obviously it 0:09:58.440 --> 0:10:02.520 validated the stance of policy right now. We also know 0:10:02.600 --> 0:10:05.599 if you look at the graph of non farm payrolls 0:10:05.640 --> 0:10:09.320 that months where we have a really outsized gain unexpected gain, 0:10:09.600 --> 0:10:11.320 the next month is kind of a makeup and you 0:10:11.360 --> 0:10:14.680 have a lower than expected increase, so that could happen. 0:10:14.920 --> 0:10:16.920 They don't look at one month, however, they kind of 0:10:16.920 --> 0:10:19.360 look farther out. I did want to pick up on 0:10:19.400 --> 0:10:22.599 something that Scott said, and uh, do a little advertisement 0:10:22.640 --> 0:10:24.520 for the Bloomberg here, and this will drive the people 0:10:24.520 --> 0:10:26.640 on radio crazy, but they can go home and uh 0:10:26.920 --> 0:10:29.080 sign into the Bloomberg and look at dots go because 0:10:29.120 --> 0:10:31.040 they've changed it a little bit now and there's a 0:10:31.080 --> 0:10:33.320 bar across the top where it says custom and you 0:10:33.360 --> 0:10:34.880 can put in a day. You go back to two 0:10:34.880 --> 0:10:37.800 thousand twelve, and you can see what the forecasts were 0:10:37.880 --> 0:10:40.200 on the dot plot compared to where they are now, 0:10:40.400 --> 0:10:42.920 and it just shows you how completely unreliable they are. 0:10:43.160 --> 0:10:46.400 They don't have visibility and everything is going to change. 0:10:46.640 --> 0:10:48.400 But if you're trading right now, you've got to trade 0:10:48.440 --> 0:10:51.160 on what they're telling you. At the moment, which raises 0:10:51.200 --> 0:10:53.839 a question, and I'll pose this to Jeff, but Scott 0:10:53.880 --> 0:10:56.480 can jump in as well. The long run neutral rate 0:10:56.520 --> 0:10:59.200 doesn't change, as we pointed out, two and a half percent, 0:10:59.400 --> 0:11:01.959 but in twenty twenty two they're still at two point 0:11:02.040 --> 0:11:04.920 one percent. Does that suggest that maybe their neutral rate 0:11:04.960 --> 0:11:08.760 is a little high. Yeah, it's it's certainly may and 0:11:09.120 --> 0:11:11.360 it's come down in terms of you also saw it 0:11:11.360 --> 0:11:13.680 in terms of the NEHRU coming down as well in 0:11:13.679 --> 0:11:17.160 the forecasts. And so this is a FED that is 0:11:17.840 --> 0:11:21.840 tilting towards accommodation because of both the risks of the outlook, 0:11:21.880 --> 0:11:23.520 but also at the point I made at the beginning, 0:11:23.679 --> 0:11:26.480 the asymmetry with respect to the outlook for inflation, and 0:11:26.480 --> 0:11:28.200 and that'll be interesting for me. I think in the 0:11:28.200 --> 0:11:31.960 press conference, does heat up this change in the policy 0:11:32.000 --> 0:11:36.240 reaction function that says we're willing to be late, we're 0:11:36.280 --> 0:11:39.960 willing to be operating different. This is no longer a 0:11:40.040 --> 0:11:43.320 preemptive FED, is a FED that is trying to UH 0:11:43.679 --> 0:11:47.840 generate inflationary UH pressures. And that's partly what you see 0:11:47.840 --> 0:11:50.280 I think in those in that path of those dots, right, 0:11:50.360 --> 0:11:52.640 But I also think it reflects that the FED is 0:11:52.679 --> 0:11:57.400 groping in the dark here, right, nehru Why we're not 0:11:57.480 --> 0:12:01.960 getting wage acceleration really? Or were inflation here? So you know, 0:12:02.080 --> 0:12:05.600 why why is nehru above four percent um? You know, 0:12:05.640 --> 0:12:08.400 I'm old enough to remember when people thought Nahru was 0:12:08.440 --> 0:12:11.480 three percent um? You know. The the other thing that's 0:12:11.559 --> 0:12:15.000 interesting is, you know this whole thing with the neutral rate. 0:12:15.760 --> 0:12:19.160 I mean some of the members of the committee actually 0:12:19.200 --> 0:12:22.880 believed the real neutral rate is negative. So you know, 0:12:22.960 --> 0:12:25.160 maybe the neutral rate isn't two and a half or 0:12:25.200 --> 0:12:27.559 two and a quarter, maybe it's closer to one and 0:12:27.559 --> 0:12:30.760 a half and so and and that's the kind of 0:12:30.760 --> 0:12:33.920 debate I think they're having internally, and they're they're just 0:12:34.040 --> 0:12:36.360 groping in the dark to figure out what to do 0:12:36.440 --> 0:12:41.000 at this point because they're in unexplored territory. Well, Scott, 0:12:41.040 --> 0:12:44.040 speaking to that debate, I'm just looking at our Steve Matthews. 0:12:44.040 --> 0:12:46.240 We're looking at the FED blog, the live blog that's 0:12:46.280 --> 0:12:48.040 going on as well. Most of the committees do expect 0:12:48.080 --> 0:12:50.840 higher rates in one there's a large dispersion of where 0:12:50.840 --> 0:12:53.760 committee participants expect rates to go. All in all, this 0:12:53.840 --> 0:12:56.040 is a devish message. I mean, there is a lot 0:12:56.080 --> 0:12:58.559 of still questions out there. I do wonder among the 0:12:58.600 --> 0:13:00.720 big macro stories that are out there, whether it's trade, 0:13:00.760 --> 0:13:03.520 whether it's the elections, some other issues, what are the 0:13:03.520 --> 0:13:06.360 ones that you're watching, um Jeff, that you think could 0:13:06.400 --> 0:13:10.199 maybe changed and really impact the FED come. Well, this 0:13:10.559 --> 0:13:13.440 is this is a world in which everything is upside down. 0:13:13.840 --> 0:13:18.000 The FED and markets don't focus on the outcome for 0:13:18.080 --> 0:13:20.760 what it means for financial markets. But the other way around, 0:13:20.920 --> 0:13:23.440 the FED focuses on financial markets for what it means 0:13:23.520 --> 0:13:28.760 for their activities, meaning financial conditions is in the driver's seat, 0:13:28.960 --> 0:13:32.199 and so what will move the FED and the dot 0:13:32.240 --> 0:13:35.480 plot and FED policy is what happens to financial conditions. 0:13:35.480 --> 0:13:39.320 And so the number one consideration today is trade policy 0:13:39.559 --> 0:13:42.280 and the trade fight that we're having, the trade war 0:13:42.400 --> 0:13:45.120 that we're having, and how that resolves. Markets have jumped 0:13:45.120 --> 0:13:49.360 to a conclusion no tariffs imposed on December, smooth sailing, 0:13:49.520 --> 0:13:53.440 everything's gonna be fine. So you're vulnerable if it isn't. 0:13:53.600 --> 0:13:56.679 And the vulnerability and financial markets means there's a spike 0:13:56.720 --> 0:14:00.000 in volatility, and that's what drove the FED back into 0:14:00.120 --> 0:14:04.440 the markets to move from hiking to cutting. That's what 0:14:04.480 --> 0:14:09.320 would move the FED. I think most likely in this environment. 0:14:09.559 --> 0:14:12.760 Mike McKee down in Washington, I want to ask you 0:14:13.280 --> 0:14:16.560 what you make of the FED stands on the repo market, 0:14:16.880 --> 0:14:20.200 especially given that is a story that has dominated Bloomberg 0:14:20.240 --> 0:14:22.520 headlines over the past couple of months. We spent a 0:14:22.520 --> 0:14:24.240 lot of time talking about it on our show. I 0:14:24.240 --> 0:14:26.520 know Scarlett has as well, and I know you have 0:14:26.880 --> 0:14:30.480 Where are we on that question? Yeah, well, the statement 0:14:30.520 --> 0:14:32.640 doesn't move us anywhere on that question, but I think 0:14:32.680 --> 0:14:36.120 Jeff had the point earlier that it was corrected. They 0:14:36.120 --> 0:14:39.360 want to keep that separate from monetary policy at this point. 0:14:39.360 --> 0:14:42.120 They don't want it to be seen as any form 0:14:42.200 --> 0:14:45.800 of policy making, any form of QUEI. So if there 0:14:45.920 --> 0:14:48.000 is to be any kind of announcement or any kind 0:14:48.000 --> 0:14:50.280 of change, it may come from j Pole in the 0:14:50.560 --> 0:14:53.440 in the press conference, But I would put it to 0:14:53.560 --> 0:14:57.080 Jeff and uh to Scott. You're looking at right now 0:14:58.720 --> 0:15:01.160 reports from the b I s that it wasn't a 0:15:01.280 --> 0:15:05.120 one time confluence of random events in September, that there 0:15:05.160 --> 0:15:08.400 are structural and regulatory problems out there. And then you 0:15:08.440 --> 0:15:11.080 have that that note that went around yesterday from Zoltime 0:15:11.120 --> 0:15:14.640 Posar of Credit Suites suggesting we could have big problems 0:15:14.720 --> 0:15:16.920 at the turn of the year. What would you like 0:15:17.160 --> 0:15:19.600 to hear, j P. I will say, what what's needed 0:15:19.600 --> 0:15:23.400 for the markets at this point? Well, look, Mike, I 0:15:23.440 --> 0:15:26.240 think that the problem here is beyond the control of 0:15:26.240 --> 0:15:30.600 the FED. UH. I think they understand that macroprudential policy 0:15:30.680 --> 0:15:32.880 that was set up UH. You know in the wake 0:15:32.920 --> 0:15:36.880 of the financial crisis has created a matrix of regulation 0:15:37.480 --> 0:15:41.280 which we're now starting to find the limitations on UM 0:15:41.520 --> 0:15:45.200 and so, you know, regulations like the g SIB which 0:15:45.520 --> 0:15:49.360 basically sets leverage ratios for the banks. UH. That gets 0:15:49.440 --> 0:15:51.960 set at the end of every year, and the banks 0:15:52.000 --> 0:15:55.560 traditionally sort of go above the ratio until December thirty 0:15:55.600 --> 0:15:58.040 one and then they shrink their balance sheets suddenly at 0:15:58.040 --> 0:16:00.960 the end of the year. That's going to cause a 0:16:01.000 --> 0:16:03.240 lot of issues coming into the end of the year 0:16:03.320 --> 0:16:06.080 and its issues I think that are beyond the control 0:16:06.080 --> 0:16:09.360 of the FED. UM. The repo market is dominated by 0:16:09.440 --> 0:16:13.920 four banks. UM, they can't you know, the transmission mechanism 0:16:14.000 --> 0:16:16.440 of these banks aren't willing to expand their balance sheet. 0:16:16.800 --> 0:16:19.760 I'm not sure how the liquidity flows from the FED 0:16:19.880 --> 0:16:22.840 to the markets. And UH, I think they have a 0:16:22.920 --> 0:16:26.000 bigger structural issue here which is outside of their control. 0:16:26.280 --> 0:16:29.000 So we're talking with Jeff earlier about financial conditions and 0:16:29.040 --> 0:16:30.920 how that will drive the FED in twenty If you 0:16:30.960 --> 0:16:33.560 bring in the repal market and the funding pressures we've 0:16:33.600 --> 0:16:35.800 seen and the fact that it will kind of continue 0:16:35.800 --> 0:16:39.480 to be an irritant, could the repal market squeeze end 0:16:39.520 --> 0:16:43.760 up infiltrating financial markets and affecting financial conditions to the 0:16:43.760 --> 0:16:45.400 point where the FED then has to respond to that. 0:16:45.800 --> 0:16:48.800 I know we're getting circular here. Sure, I don't think 0:16:48.840 --> 0:16:51.760 we're gonna the repo market. It will self. I think 0:16:51.760 --> 0:16:53.680 I can get really sloppy going into the end of 0:16:53.680 --> 0:16:55.440 the year. I think we could have a lot of 0:16:55.440 --> 0:16:59.080 dislocation because if you can't finance this collateral, the only 0:16:59.080 --> 0:17:01.480 other option is to sell it. So we could see, 0:17:01.520 --> 0:17:04.040 you know, some some significant sell offs going to the 0:17:04.119 --> 0:17:06.760 end of the year in fixed income in particular. But 0:17:07.080 --> 0:17:08.960 you know, the thing that I've you know, Jeff is 0:17:09.000 --> 0:17:12.359 talking about the uncertainty, and the thing that I find 0:17:12.400 --> 0:17:16.879 interesting is this skew in options pricing. Uh. You know, 0:17:16.960 --> 0:17:21.760 all the put buying that's going on around next year. Uh, 0:17:21.800 --> 0:17:25.400 and the election looks a lot like what was going 0:17:25.440 --> 0:17:28.560 on back in two thousand and sixteen before the election. 0:17:29.000 --> 0:17:31.679 And so you know, history shows us that when you 0:17:31.800 --> 0:17:35.080 have this much sort of hedging occurring in the market, 0:17:35.600 --> 0:17:38.680 that once you know, you get past the risk event, 0:17:38.840 --> 0:17:42.160 if you haven't had some major bad piece of news, 0:17:42.280 --> 0:17:45.240 it's we're likely to get a lift in stock prices 0:17:45.240 --> 0:17:47.359 and risk assets across the board. All right, So we 0:17:47.359 --> 0:17:49.600 could see some big moves later on. Mike McKie, I 0:17:49.600 --> 0:17:51.840 know you're about to head into the news conference that J. 0:17:51.960 --> 0:17:55.400 Paulb be hosting in about fifteen minutes time. What kind 0:17:55.440 --> 0:17:57.320 of I mean? I know that you're not going to 0:17:57.359 --> 0:17:59.199 give us the exact question, but gives a sense of 0:17:59.200 --> 0:18:02.439 where you're really gonna russ him? Well, I think we 0:18:02.480 --> 0:18:05.880 want to know if there is any kind of concrete 0:18:05.960 --> 0:18:09.719 or or clear explanation of what the Fed's reaction function 0:18:09.840 --> 0:18:13.080 is now. Is it inflation that they're watching that would 0:18:13.080 --> 0:18:17.040 cause them to maybe change their their forecast, their outlook 0:18:17.280 --> 0:18:20.720 for rate moves. And obviously there are questions about the 0:18:20.720 --> 0:18:24.600 repole market. We were laughing today. We could ask about 0:18:24.600 --> 0:18:28.000 Steven Strasburg and Garrick Cole's new baseball contractor they're gonna 0:18:28.040 --> 0:18:33.439 be pushing wage inflation higher. Uh, at this point we 0:18:33.440 --> 0:18:36.640 could ask him anything like that. Well, Mike, I gotta say, 0:18:36.680 --> 0:18:40.639 I don't think it will be at the Dodgers. Yeah, alright, 0:18:40.640 --> 0:18:42.800 looking forward to those questions. All right, our thanks to 0:18:42.840 --> 0:18:45.919 Bloomberg's Michael McKee. He'll rejoin us after FED here j 0:18:46.000 --> 0:18:48.320 Powell's news conference, and we'll get back to Mike shortly. 0:18:48.640 --> 0:18:50.520 I do want to continue, We do want to continue 0:18:50.520 --> 0:18:53.679 with our roundtable here. So, Jeff, I do wonder about 0:18:53.800 --> 0:18:56.639 kind of though this subpar growth, I mean, do we 0:18:56.680 --> 0:18:59.159 start to see um growth at all pick up in 0:18:59.200 --> 0:19:01.240 your view and term of the U. S economy? Well, 0:19:01.600 --> 0:19:03.480 you know, I think we've got to unpack what you 0:19:03.520 --> 0:19:07.359 mean by subpar growth because this growth is actually above potential, 0:19:07.840 --> 0:19:10.320 and it's you know, while potential one in three quarters 0:19:10.520 --> 0:19:14.040 is subpar relative to history, forget the history. The world 0:19:14.080 --> 0:19:17.800 has moved on, demographics has changed, productivity has changed. We're 0:19:17.840 --> 0:19:22.280 outperforming our potential. So this is actually quite good growth. Uh. 0:19:22.280 --> 0:19:24.520 And as as Scott said, there's a case to be 0:19:24.600 --> 0:19:26.640 made that it could get that much better because we're 0:19:26.640 --> 0:19:30.800 providing accommodation. Housing is turning, the labor markets are are 0:19:30.880 --> 0:19:34.640 quite strong. So I think the growth picture, at least 0:19:34.640 --> 0:19:37.800 in the US is good. Now globally there's a subpar story, 0:19:37.840 --> 0:19:40.360 and that's certainly been a big part of uh this 0:19:40.440 --> 0:19:44.200 year's recession, fears that the US would import the world 0:19:44.320 --> 0:19:46.960 subpar growth. But next year we could flip that around 0:19:47.000 --> 0:19:50.040 and the US could export it's above par growth to 0:19:50.080 --> 0:19:52.960 the rest of the world. UH So, I think the 0:19:53.040 --> 0:19:55.359 FED is a little bit less concerned about the growth 0:19:55.400 --> 0:19:58.840 picture and a bit more concerned about the inflation picture 0:19:59.280 --> 0:20:02.600 thereof exactly, but from too little. And that gets you 0:20:02.640 --> 0:20:05.560 again to this asymmetry on the inflation and that's really 0:20:05.600 --> 0:20:09.000 their problem, and it's a problem that they think they 0:20:09.000 --> 0:20:12.680 have the tools because inflation is a monetary uh component, 0:20:12.840 --> 0:20:15.600 and they're going to be focused on how do we 0:20:15.640 --> 0:20:18.800 get inflation back up and how do we avoid deflation 0:20:19.040 --> 0:20:23.719 and really did the deflation in inflation expectations, because that's 0:20:23.760 --> 0:20:26.280 the concern. Well, Scott, we could talk a little bit 0:20:26.320 --> 0:20:28.399 more about baseball. I would love to do that, But 0:20:29.240 --> 0:20:33.280 related to that, let's let's talk a little bit about 0:20:33.280 --> 0:20:36.640 the consumer and maybe the CEO, the typical CEO who 0:20:36.680 --> 0:20:39.480 you're talking to, how is he or she feeling as 0:20:39.560 --> 0:20:42.119 they're reading this from the FED and looking forward to 0:20:42.240 --> 0:20:44.360 j Powe, Well, I think, look, I think that your 0:20:44.400 --> 0:20:49.760 typical CEO is trying is basically putting everything on hold. Um, 0:20:50.080 --> 0:20:53.600 we have all these questions around charade, the supply chain, 0:20:54.000 --> 0:20:56.880 and you see it in expectations for investment next year. 0:20:57.240 --> 0:20:59.480 So I think most of them are just focused on, 0:20:59.560 --> 0:21:03.040 you know, how do I milk as much productivity out 0:21:03.040 --> 0:21:05.919 of this as I can? When you know, as Jeff 0:21:06.000 --> 0:21:07.880 was talking about, you know, you aren't you know, we're 0:21:07.880 --> 0:21:10.440 not seeing runaway wage pressure, but you know, we are 0:21:10.480 --> 0:21:13.840 seeing wages grow between three and three and a half percent, 0:21:14.320 --> 0:21:18.520